Results of Agreed-Upon Procedures

1. Results of Agreed-Upon Procedures Ryan Miller, CPA Audit Manager November 29, 2010

2. Overview • Background of the Engagement • Procedures with No Findings • Deficiencies • Procedures • Findings • Management’s Response • Impact of Findings • Conclusion and Recommendations

3. Background of the Engagement Preliminary procedures Risk assessments

4. Background of the Engagement • We gained an understanding of the processes in place related to accounting for property tax transactions and the internal controls surrounding these transactions. • Auditor’s Office • Furniture and Fixtures • Watercraft • Automobiles • Assessor’s Office • Mobile Homes • 4% Real Property • 6% Real Property

5. Background of the Engagement • Treasurer’s Office • Tax Collections • Recording and Posting Journal Entries • Bank Deposits • Distributions to Municipalities • Finance Office • Tax Increment Financing (TIF) Reconciliations and Distributions • Stormwater Utility (SWU) Reconciliations and Distributions • SWU Office • Calculation of the SWU Fees

6. Background of the Engagement • We documented narratives based on the interviews with personnel from each department. • We obtained approval of the various narratives from personnel from each department. • We identified the key processes and internal controls. • We randomly selected one transaction from the following categories: • Furniture and Fixtures • Watercraft • Automobiles • Mobile Homes • 4% Real Property • 6% Real Property

7. Background of the Engagement We performed walk-through with each transaction to assess the design effectiveness of the processes and internal controls. We obtained Manatron Report exported into Excel and randomly selected 10 transactions for each type of property (6 types) for 8 distribution periods (12/15/2009, 12/31/2009, 1/15/2010, 1/31/2010, 2/28/2010, 3/15/2010, 3/30/2010 and 4/30/2010) for a total sample size of 480 transactions. For each transaction, we tested the processes and internal controls identified from our interviews and walk-through procedures.

8. Procedures with No Findings What procedures were performed in which there were no exceptions? What were the departments that did not have findings related to these procedures?

9. Procedures with No Findings • Procedure 1: For each transaction, we compared the information (parcel number, district number, property type, class code, mills, appraised value, capped value, taxable value, and tax amount) listed on the tax bill to Manatron. • Assessor’s Office • No findings • Auditor’s Office • Watercraft • No findings • Procedure 3: For all real properties, we compared the appraised value listed on the County Assessor’s property valuation system to the market value listed on the “Assessment Notice.” • Assessor's Office • No findings

10. Procedures with No Findings • Procedure 5: For real properties that received the Homestead Exemption, we examined the “Application for Homestead Exemption” signed by the taxpayer and approved by the County Auditor and a copy of the taxpayer’s driver’s license. • Auditor’s Office • Mobile Homes • No findings • 6% Property • No findings • Procedure 7: For real properties that received the Homestead Exemption, we compared the "Application for Homestead Exemption" to the exemption amount as reflected on the tax bill to determine if the exemption received was the lesser of $50,000 or the gross appraised value.

11. Procedures with No Findings • Auditor’s Office • No findings • Procedure 8:For each real property selection, we compared the market value, capped value and assessed value listed on the “Assessment Notice” to the tax bill. • Assessor’s Office • No findings • Procedure 9: For each of the following property types selected, we recalculated the assessed value from information reflected on Manatron and compared it to the assessment ratio reflected on the tax bill. • Auditor’s Office • Watercraft • No findings

12. Procedures with No Findings • Automobiles • No findings • Procedure 12: For each property selected, we compared the mills applied on the tax bill to the approved millage rate schedule for the applicable district as provided by the County Auditor’s office. • Auditor’s Office • No findings • Procedure 13: For each property selected, we footed the total taxes listed on the tax bill for accuracy. • Auditor’s Office • No findings

13. Procedures with No Findings • Procedure 14: For each property selected, we recalculated the gross tax due by multiplying the assessed value by the total mills and dividing by one thousand. We compared the recalculation to the gross tax due as reflected on the tax bill. • Auditor’s Office • No findings • Procedure 19: For each property selected, we traced the tax amount listed on the “Payment Receipt” to its inclusion in the applicable day’s “Sessions Reconciliation Report.” • Treasurer’s Office • No findings

14. Procedures with No Findings • Procedure 22: For each real property selected located within a Tax Increment Financing (TIF) district, we traced the property’s inclusion on the "TIF Reconciliation" prepared by the Chief Financial Officer (CFO) and agreed the total due to or due from the TIF district to the journal entry posted to the general ledger. • Finance Office • No findings • Procedure 23: For each real property that was included on the “TIF Reconciliation,” we traced the amount of the journal entry for the applicable “TIF Reconciliation” to an authorized “Request for Payment” and a copy of a cancelled check. • Finance Office • No findings

15. Procedures with No Findings • Procedure 24: For each real property that was included on the “TIF Reconciliation,” we traced the copy of the cancelled check to the applicable bank statement. • Finance Office • No findings • Procedure 25: For each real property selected, we traced the property’s inclusion on the corresponding municipality’s “SWU Fee Reconciliation” (as applicable) prepared by the CFO and agreed the total for that municipality (less a 5% County management fee) to the journal entry posted to the general ledger. • Finance Office • No findings

16. Procedures with No Findings • Procedure 26: For each real property that was included on the “SWU Fee Reconciliation,” we traced the amount of the journal entry for the applicable “SWU Fee Reconciliation” to an authorized “Request for Payment” and a copy of a cancelled check. • Finance Office • No findings • Procedure 27: For each real property that was included on the “SWU Fee Reconciliation,” we traced the copy of the cancelled check to the applicable bank statement. • Finance Office • No findings

17. Deficiencies What procedures were performed in which there were findings? What departments experienced these findings? What were the findings? What was management’s response to these findings? What is the impact of these findings?

18. Procedure 1 • For each transaction, we compared the information (parcel number, district number, property type, class code, mills, appraised value, capped value, taxable value, and tax amount) listed on the tax bill to Manatron. • Finding • The mill apportionment listed on the tax bill was not in agreement with the mill apportionment listed on Manatron as follows:

19. Procedure 1: Analysis of Finding

20. Procedure 1: Management’s Response • Auditor’s Office • The Auditor's office did not provide a management response related to these findings as of the date of this report.

21. Procedure 1: Impact of Finding • Auditor’s Office • It is important for the County's taxing system to export the tax bills accurately so the taxpayers receive accurate information on their tax bills. The taxpayers pay what is reflected on the tax bills and if this information is incorrect, the County's tax revenues will be incorrect.

22. Procedure 2 • For each transaction, we performed the following related to the taxpayer’s ownership of the property: • For mobile homes, we obtained a copy of the “Bill of Sale,” “Title,” and “Licensing Application” and compared it to the tax bill. • For 4% and 6% real properties, we compared the taxpayer’s name, address, parcel number and description of the property listed on the tax bill to a copy of the “Deed.” • For furniture and fixtures, we compared the taxpayer’s name, address and description of the property listed on the tax bill to a “Personal Property Return.”

23. Procedure 2 (continued) • For watercraft, we compared the taxpayer’s name, address and description of the property listed on the tax bill to the “Schedule of Registered Watercraft” provided by the Department of Natural Resources. • For automobiles, we compared the taxpayer’s name, address, vehicle identification number and description of the property listed on the tax bill to the “Affidavit of Sale” provided by the South Carolina Department of Motor Vehicles (SCDMV). • Finding • Copies of “Bills of Sale,” “Title Applications,” “Licensing Applications,” “Deeds,” “Personal Property Returns,” “Schedule of Registered Watercraft,” and “Affidavits of Sale” were not maintained on file as follows:

24. Procedure 2: Analysis of Finding

25. Procedure 2: Management’s Response • Assessor’s Office • Under current administration, every effort is made to ensure necessary documentation is provided and the Assessor’s office will often notify owners the necessity of registering the mobile home with the Building Codes department. Mobile home documentation received by the Assessor’s office represents what is submitted via applications for mobile home permits to the Building Codes department. • The Repository for Beaufort County “Deeds” is with the Register of Deeds. The Assessor’s office maintains copies of deeds on an “as needed” basis. • Auditor’s Office • The Auditor's office did not provide a management response related to these findings as of the date of this report.

26. Procedure 2: Impact of Finding • Assessor’s Office • There is no evidence that the mobile home is registered with the County and that the County does not have knowledge of who owns the property. • There is no evidence that the property is registered with the County and that the County does not have knowledge of who owns the property.

27. Procedure 2: Impact of Finding (continued) • Auditor’s Office • The Auditor's Office should ensure business owners are completing personal property returns accurately so business owners are not purposely omitting personal property, thus avoiding taxation. Copies of these personal property returns should be kept on file for each business owner. • The Auditor's Office should ensure watercraft owners have their watercraft registered with DNR so they will not avoid paying property taxes. This could cause the County's tax revenues to be understated in its financial statements. • The Auditor's Office should ensure automobile owners have their automobiles registered with the SCDMV so they will not avoid paying property taxes. This could cause the County's tax revenues to be understated in its financial statements.

28. Procedure 3 • For each property, we performed the following related to the value of property tax assessment: • For all real properties, we compared the appraised value listed on the County Assessor’s property valuation system to the market value listed on the “Assessment Notice.” • For furniture and fixtures, we compared the appraised value listed on the tax bill to the taxpayer’s signed personal property return. • For watercraft, we compared the appraised value listed on the tax bill to the blue book value listed in the “ABOS Marine Blue Book.” • For automobiles, we compared the appraised value listed on the tax bill to the “Assessment Guide” provided by the SCDMV. • Finding • Appraised values listed on the County’s tax system did not agree to supporting documentation as follows:

29. Procedure 3: Analysis of Finding

30. Procedure 3: Management’s Response • Auditor’s Office • The Auditor's office did not provide a management response related to these findings as of the date of this report.

31. Procedure 3: Impact of Finding • Auditor’s Office • It is important that the appraised values are accurately reflected in the County's taxing system and on the tax bills because the assessed values are a product of the appraised values and the tax amounts due to the County are a product of the assessed values. Inaccurate appraised values have the potential to cause the County's tax revenues to be misstated in its financial statements.

32. Procedure 4 • For real properties that increased in value from the previous tax year, we recalculated the capped value by multiplying the market value as of the end of the previous tax year by 1.15. Then, we compared the recalculation of the capped value to the capped value as reflected on the “Assessment Notice.” • Finding • The capped value listed on the “Assessment Notice” did not agree to the recalculated capped value of the properties as follows:

33. Procedure 4: Analysis of Finding

34. Procedure 4: Management’s Response • Assessor’s Office • The capping procedures implemented by the South Carolina Department of Revenue calculated the capped value for each valuation line (land, building, garage, etc.) in stead of capping all the property in total. This created differences in the calculations. The 2010 legislation changed the capping calculation from valuation line capping to capping the total value.

35. Procedure 4: Impact of Finding • Assessor’s Office • Capped values drive the assessed values of properties. If capped values are incorrect, the assessed values will be incorrect. This will translate to incorrect tax amounts, which will cause the County's tax revenues to be misstated in its financial statements.

36. Procedure 5 • For real properties that received the Homestead Exemption, we examined the “Application for Homestead Exemption” signed by the taxpayer and approved by the County Auditor and a copy of the taxpayer’s driver’s license. • Finding • An “Application for Homestead Exemption” was not kept on file as follows:

37. Procedure 5: Analysis of Finding

38. Procedure 5: Management’s Response • Auditor’s Office • The Auditor's office did not provide a management response related to these findings as of the date of this report.

39. Procedure 5: Impact of Finding • Auditor’s Office • "Applications for Homestead Exemptions" should be kept on file, so evidence exists that the taxpayer is receiving a valid exemption. Without evidence that the taxpayer completed this application, the risk that a taxpayer received this exemption in an erroneous or fraudulent manner increases.

40. Procedure 6 • For real properties that received the Homestead Exemption, we compared a copy of the taxpayer's driver's license to the "Application for Homestead Exemption" to determine if a driver’s license copy was maintained for each application. • Finding • A copy of the taxpayer's driver's license was not kept on file as follows:

41. Procedure 6: Analysis of Finding

42. Procedure 6: Management’s Response • Auditor’s Office • The Auditor's office did not provide a management response related to these findings as of the date of this report.

43. Procedure 6: Impact of Finding • Auditor’s Office • It is the Auditor's Office policy to obtain a copy of the taxpayer's driver's license when the taxpayer applies for the Homestead Exemption. This is so the Auditor's Office can verify the taxpayer and his or her age. Without a copy of the driver's license kept on file, there is no evidence that the taxpayer's age and other information was verified prior to receiving the exemption. This increases the risk that the taxpayer received the exemption erroneously or fraudulently.

44. Procedure 9 • For each of the following property types selected, we recalculated the assessed value from information reflected on Manatron and compared it to the assessment ratio reflected on the tax bill. • Finding • We noted differences between the recalculated assessed value and the assessed value reflected on the tax bill as follows:

45. Procedure 9: Analysis of Finding

46. Procedure 9: Management’s Response • Assessor’s Office • Some differences in assessed values per Manatron and the tax bill were due to rounding. In addition, “Special Assessment Ratio Applications” are accepted until taxes are due without penalty. Thus, a tax bill that is mailed in November with an assessment ratio of 6% is subject to change if the taxpayer timely filed the “Special Assessment Ratio Application” and was approved to receive the 4% ratio. • Auditor’s Office • The Auditor's office did not provide a management response related to these findings as of the date of this report.

47. Procedure 9: Impact of Finding • Assessor’s Office • Assessed values directly drive the calculation of the tax amount due. If assessed values are incorrect, then the tax amounts due will also be incorrect. This will cause the County's tax revenues to be misstated in its financial statements. • Auditor’s Office • Same as above

48. Procedure 10 • For all real properties classified as a legal residence, we attempted to observe the “Special Assessment Ratio Application” completed by the taxpayer and approved by the County Assessor. • Finding • A “Special Assessment Ratio Application” was not kept on file at the County Assessor’s office as follows:

49. Procedure 10: Analysis of Finding

50. Procedure 10: Management’s Response • Assessor’s Office • The parcels related to the findings above have been owned by the same individuals for at least twenty years. There is no explanation why the “Special Assessment Ratio Application” for these individuals is not kept on file. Currently, all “Special Assessment Ratio Applications” are archived and retrievable.